European politics

Italy under IMF supervision

Berlusconi burlesque

FIRST Greece. Next Italy? Troubled euro-zone countries get bail-out money with conditions and strict monitoring by the International Monetary Fund (IMF). But at the G20 summit that concluded in Cannes today, the troubled euro zone got no more money (more on this in my next post), and Italy was placed under IMF monitoring.

Though yields on its bonds have soared alarmingly, Italy has not had to seek a bail-out (not yet anyway). And in an attempt to ensure it does not succumb, bringing down the euro with it, it has been placed under a special preventive regime—placed on probation to ensure it implements the many promises it made to carry out reforms designed to promote growth and balance the budget by 2013.

The polite fiction is that Italy has "invited" this monitoring, but nobody makes any secret of the fact that the government of Silvio Berlusconi has a problem with “credibility”. Nicolas Sarkozy, the French president, says Italy's case is “completely different” to that of Greece, which has galvanised the attention of the G20 summit, given the prospect that it may soon default on its debt (see my recent post here and my last column here)

By the same token, Italy's position is now markedly worse than that of Spain, which until this summer had been seen as the country most likely to succumb after Greece, Ireland and Portugal. But Spain's outlook is now less dire as a result of a succession of reforms, and the decision by the prime minister, José Luis Rodríguez Zapatero, to step down at the next election later this month.

So Mr Berlusconi, in the dying days of his government, has been put in remedial class—a humiliation for the third-biggest economy in the euro zone, and a founding member of the European Union. “He is fully aware of the seriousness of the situation. And if he wasn't, he is aware of it now,” says one senior EU source.

Little more than a fortnight ago, such treatment would have been unthinkable. Officials in Brussels recount how Mr Van Rompuy had sent Mr Berlusconi an early draft of the last European summit's conclusions, making passing reference to “specific commitments made by Italy and Spain”.

Mr Berlusconi telephoned him, saying being singled out in such a manner was “a scandal”. Italy's fiscal position, with a primary budget surplus (before interest) and low private debt, was healthier than that of most other euro-zone members, insisted Mr Berlusconi. Italy's high debt was the product of the past, accumulated by previous Christian Democrat and Socialist governments for which he could not be held accountable. “I have always wanted to carry out reforms,” Mr Berlusconi told Mr Van Rompuy. To which the European Council president replied: “Silvio, it's time to make your dreams come true.”

At the first of two pairs of European summits last month, Mr Berlusconi was summoned by Angela Merkel, Germany's chancellor, and Nicolas Sarkozy, the French president, to be told to come up with a credible reform plan within three days (see my column here), in time for the second round of summits on October 26th.

We invite the Commission to provide a detailed assessment of the measures and to monitor their implementation, and the Italian authorities to provide in a timely way all the information necessary for such an assessment.

A week later, the IMF was also “invited” to join the monitoring process. As well as humbling Mr Berlusconi, the decision was also a sign of mistrust in the ability of the commission to act with sufficient rigour.

Mr Berlusconi shrugged it all off as nothing more that an audit, of the sort that a company might seek from an accountancy firm. Some audit. Christine Lagarde, the IMF's boss, said she would be reporting quarterly, in public documents, on Italy's progress. This is what she had to say:

We will be checking the implementation of the commitments that have been made by Italy under the 15-page commitment that it has made to the members of the euro zone a couple of weeks ago. So it's verification and certification, if you will, and implementation of a programme that Italy has committed to. As far as I'm concerned, I might be laborious I might be demanding, I might be rigorous but I will be looking at the commitments that have been made to confirm the implementation.

The problem that is at stake, and that is what was clearly identified both by the Italian authorities and by its partners, is a lack of credibility of the measures that are announced. Therefore, to attest the credibility of those measures, in other words their implementation, the typical instrument that we would use is a precautionary credit line. Italy does not need the funding that is associated with such instruments. The next best instrument is fiscal monitoring.

The question of precautionary credit lines led to a strange little incident that highlights Mr Berlusconi's problem with credibility. The Italian prime minister claimed that the IMF had offered him such a line of credit. But Ms Lagarde said no such offer was made. Who to believe? Most will take Mrs Lagarde's word over Mr Berlusconi's.

It doesn't take too much to share this opinion. Mr Berlusconi in his long rule has been saying a lot of silly arguments nobody can reasonably trust on him. Recently he dared say that the Italian economy is fine, people do fine, restaurants are well crowded, airways are overbooked...That may be true if he referred to people as rich as he is (or as he may be). Indeed, there is a larger share of citizens who are either jobless or have an underpaid job (sometimes euros 700 per month or even less), people who would accept ANY job but they find NONE, primary good prices are always expensive in the meantime...for him that is never a problem, nothing in his mind really is. Now also Europe is foundering, Mr B, after making fool of Italians, what do you think you can come at?

I expect to see the IMF really clamping down on Italy soon. We've seen this before; IMF monitoring almost guarantees that the country in question (Italy) will be forced to privatize and sacrifice the public property that Berlusconi hasn't already sold off in order to comply, lest the IMF and other Western countries spread the idea that Italy is failing and bring those prophecies to fruition. Chicago school economics are in full force here, thanks mostly to Berlusconi's almost perfect talent for undermining Italians' faith in their own government and public institutions.

It's economic shock doctrine for the west, and it's working everywhere in the form of austerity measures and bad politicians.

The IMF will help stabilize not only Greece’s’ and Italy’s’ economies, but also the global economy. The euro-zone could detrimentally harm the global economy so these preventative measures are sure to help. This whole trust but verify tactic is reasonable considering that these nations have gotten so down that a helping hand could only prove to be beneficial.

Berlusconi needs to resign just like Spanish prime minister zapatero, whose country is suffering economically. The fact that the IMF is monitoring Italy should alarm Berlusconi that italy is possibly the next country to suffer economically. Berlusconi has lost creditibility world-wide and he is creating more problems for Italy by claiming that the IMF has given him a line of credit even though the IMF has rejected this claim. It's great to hear that Berlusconi wants to enact refor ms, but he is a tad it late in the game to make amends for his past transgressions.

Berlusconi is so awful at delegating everything but the blame! He has certainly failed in the effort department of leadership, as well as holding himself accountable and responsible for some of Italy’s downfall. Of course it was not just his bad leadership that led Italy downhill, but it’s his lack of cooperation that kept them falling down at a constant rate. Italy won’t directly ask for a bailout now- they probably are just going to expect it. If Greece, who’s economy is not nearly as significant as Italy’s, being member of the G20, is saved, then Italy will certainly be taken care of. If it is up to Sarkozy though, that wouldn’t happen...but Merkel…probably.

Hi, Any one for a nice Can Can
Interesting. At the G20 summit in Cannes the American President indicated America's solidarity with the Euro group in the form of “Chewing gum, Nylon stockings and Chocolate Bar's” but did not say anything about money for the IMF. This may be due to the American “ressentiment” or suspicion of France influence in the IMF and thus that of President Sarkozy. What's exactly going on between the prominent ears of Monsieur Sarkozy is difficult to asses. His activity on the international stage may have with the French upcoming elections. He kisses Fr. Merkel to much (or she him), tell Mr. Cameron to “shut up” ridicules Greece. His election problems are not so much the socialists asparagus source but the charismatic Mme.Marine le pen who seems to have pulled her party “out of the cold”. The EU Summit in Nice and that of the G20 in Cannes missed the issues. Italy's problems are that of the IMF.
Regards Terence Hale

As harsh as it may be, expecting anything good from Italy and a leader who is completely out of control of his people is extremely naive. Not only is he out of control, but his economy is in the gutter along with the rest of Europe. They haven't had a bail out but it is nearly certain that they will and its only going to add to the loads of issues they have with their government even without the economic issues. Berlusconi simply needs to go.

It doesn't take a genius to see that Mr. Berlusconi is as good as gone. This has to be embarrasing for Italians. And the Euro-Zone leaders say, "Oh no, we trust you Mr. Berlusconi... No no, we just 'invited' you here to 'verify' that you're using bailout funds the right way in your country." What a bunch of blarney. The rest of the world should not and will not believe any of Mr. Berlusconi's "promises" until he gives us a reason to. Silvio, go to your room.

The only way that we will see a true reform in Italy can only happen if Berlusconi step down from his position. Interestingly, he announced that he will not step down via facebook earlier this week. What kind of politician make announcement through facebook? He has already lost his credibility by his own people and the international community. The problem in Italy is far more serious than Greece and it will definitely make a serious impact in the global economy.

@becca6
You forget to consider that Berlusconi had no freehand in his Government. Both in his party and in his Government he had a great number of people who came from the old parties who didn't want great reforms at all. His main ally Fini who switched camp last year came from the Fascist party (MSI), some of his men and Ministers came from the olf Communist party and other from the Christian Democracy amd Socialist party. Almost all of them had skeletons in their cupboard and were untrustworthy. Perhaps the foundation of his party with all these treacherous men within, was a naive thing to do. The opposition is formed with the same people of the past all heir of the old parties of the past,the same parties which caused the huge public debt. Things are looking black down for Italy.

With Berlusconi in charge, I am not surprised that Italy’s economy is failing. I think for Italy to get out of their financial and economic crisis, Berlusconi must step down and be replaced. With scandal upon scandal arising, he is ruining Italy and losing trust from everyone. Hopefully he will follow in Zapatero’s path and step down. It has helped Spain’s economy improve and could possibly do the same for Italy. I am not sure that if Italy had another leader then it could have prevented their problems, but Berlusconi has done nothing but made the situation worse.

It seems the G 20 summit hasn't put any thing substantial by finding to resolve the individual problem of the member countries (euro zone) and the issues in common.
there are issues beyond just bail out. committed reforms strategies, and many things to be done within a relatively shorter time frame.

hope there would be a stronger resolutions before a worse zonal melt-down and corresponding global fiscal turmoil.

one thing is evident that we may need to focus on the problems related with individual countries in isolation rather than making it collective

We should definitely keep Italy on deep watch. We do not want this state to go to pieces that Greece is. I believe that Italy would be fine if they had a respectable leader who is in it for the right reason. Berlusconi is in power more women, sex, and to be famous. He needs to drop from office or make a major turnaround and get his state back on track.

Italy should be monitored. The world's leaders should/need to recognize how interconnected we all are and they are right to take precautionary measures so as not to collapse teh economy of Italy, Europe, and the world associated with their economies.

I agree and disagree with Nicolas Sarkozy’s statement that, “Italy’s case is “completely different” to that of Greece”. Italy’s situation is similar to Greece’s. They are both in very deep debt. The one main difference between the two countries’ situations is that Italy is a top world economy. Italy is “the third-biggest economy in the euro zone.” If Italy were to crash it would completely destroy the euro zone. I believe that more attention should be placed on Italy because they are in as much trouble as Greece, if not more.